UPST Stock Analysis: The Bull vs. Bear Case

Stock Market

Upstart Holdings (NASDAQ:UPST) stock initially surged from $12.90 to $72.60 in August, followed by a correction to $27.60 per share. The stock’s prior surge could be an indicator of anticipated future value, not just a speculative increase. There’s no denying that Upstart’s AI-driven lending platform brings a lot of enthusiasm to its business model.

With a 67% profit margin, Upstart recorded $135.8 million in revenue in Q2 2023, marking a 2,000 basis point increase from the previous year. Investors are attracted to Upstart’s strong financials and promising market, there are also potential risks to consider. Let’s discuss where UPST stock could be headed in this article.

Recent UPST News

Heritage Financial Credit Union (HFCU), a New York-based community credit union, partnered with Upstart Holdings in July 2023. This collaboration aimed to broaden personal loan options with a modern, digital-first lending approach.

In their latest agreement, Upstart provided a new personal loan offering available on, accessible to applicants meeting HFCU’s credit criteria.

Qualified applicants received customized offers as they progressed through the online application process, expanding HFCU’s digital membership. This addition to UPST’s portfolio significantly increased loan transaction volumes by 30% in Q2 2023, serving an additional 43,000 borrowers.

Additionally, the company extended their presence in auto retail lending to 61 locations, now covering over 65% of the U.S. population. These corporate partnerships are key to Upstart’s strategy, and those bullish on the stock will like to see these continue.

The Bull Case

Speaking of Upstart’s bull case, there are other factors investors will want to keep an eye on moving forward.

Upstart went public at a favorable time when consumers had ample cash from government stimulus checks. The company partnered with numerous lenders to test their AI-powered lending platform.

As intermediaries, they aided lending organizations in underwriting consumer loans more profitably, focusing on data-driven AI models rather than FICO scores. Upstart’s revenue largely depends on loan volume, with its platform incentivizing lenders to increase loan origination using Upstart’s services.

Upstart’s stock is thriving amid the AI boom, but the company’s focus on AI and machine learning for credit risk analysis sets them apart. Upstart’s unique approach enhances loan approval rates and reduces defaults. With 100 lending partners on board, they profit from each facilitated loan.

Upstart deals in personal, auto, and home loans, with a view of a $4 trillion market. However, it’s improbable they’ll access this entire market because of competition from major financial institutions heavily investing in tech and AI.

The Bear Case

Upstart faced a significant decline in loan volume during recent quarters, leading to a 64% year-over-year decrease in lending partners’ originations in Q2 2023. This resulted in a 44% drop in fee revenue to $144 million for the quarter.

The company, which had been expanding, experienced an operating loss of $33.3 million in Q2 2023, a notable shift from the $36.3 million net income two years earlier.

While lending volume improved slightly from $997 million in the first quarter, one might attribute the cause of this decline to rising interest rates and concerns about loan performance, with gross returns falling below target cash flows.

Over the past year, Upstart achieved $538 million in revenue, resulting in a price-to-sales ratio of 4-times, nearly double the S&P 500 average. The stock’s price implies expectations of robust margin expansion or above-average revenue growth, despite the company’s financial losses and declining revenue.

This level of uncertainty makes it less appealing to invest in Upstart, especially at a premium price. Unless shares become more affordable, it’s advisable to steer clear of Upstart.

Keep Bets on UPST Stock Small

Upstart’s fate hinges on external factors like interest rates and market sentiment toward AI tech. It must prove its ability to enhance financial performance.

While there’s potential when it comes to Upstart, uncertainties abound. If you choose to invest in UPST stock, keep a modest position and an exit strategy handy, in case things take a turn for the worse.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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